Latvia's Balance of Payments in the First Quarter of 2000

Press Release of June 30, 2000

In the first quarter of 2000, the deficit of the balance-of-payments current account in was 37.7 million lats or 4.0% of the gross domestic product (compared to 57.7 million lats or 6.9% of GDP in the first quarter of 1999). Year-on-year, the deficit decreased by 20.0 million lats, due, primarily to the increase in the positive balance of services. The deficit of the current account was closely related to the negative balance of goods, which increased by 9.7 million lats. The export of goods in the first quarter increased by 11.7%, reaching 296.1 million lats, and the import of goods increased by 11.1% (to 407.9 million lats). Imports exceeded exports by 37.8% (in the first quarter of 1999, by 38.5%).

In comparison with the corresponding period of last year, the positive balance of services increased by 27.8 million lats, reaching 74.0 million lats. This was a result of the increase of 26.6% in the volume of transport services (primarily, sea transport) and increase of 42.0% in other services rendered (primarily other commercial services). The transport services balance was positive, and the deficit in travel and other services decreased. The positive balance of services covered 66.2% of the negative balance of goods.

The negative balance of income decreased by 2.3 million lats, thereby reducing the current account deficit. Changes in the balance of current transfers were insignificant. Year-on-year, the income and current transfer turnover recorded a two-fold increase. Since data on external payments of non-banks have also been included, the quality of the resulting information has increased substantially.

The surplus in the capital and financial account in the first quarter of 2000 was 29.2 million lats, and it covered 77.5% of the current account deficit.

Non-residents direct investment in Latvian businesses, which amounted to 38.8 million lats, mostly took the form of increasing the equity capital of enterprises and reinvesting earnings of previous years. During the reporting period, the direct investors reduced their other capital investments in Latvia. Latvian residents' direct investment abroad, primarily in the equity capital of enterprises, totalled 2.6 million lats.

The total of portfolio investments made by Latvian residents abroad was 68.8 million lats. The principal investor of this type was the banking sector, and its investment of choice, debt securities. Non-residents portfolio investments in Latvia were also primarily made in debt securities and amounted to 9.4 million lats. The deficit of the portfolio investment account reached 59.4 million lats in the first quarter.

Other investment by non-residents in Latvian businesses and by Latvian residents abroad totalled 112.9 million and 50.1 million lats, respectively, and the surplus in the other investment account was 62.8 million lats. The banking sector again contributed the bulk of foreign investments (66.1 million lats), mostly by increasing deposits in foreign banks and thus ensuring a liquid placement of attracted funds.

In the first quarter, foreign funds were primarily attracted by the banking sector (99.0 million lats). Other liabilities of the banking sector increased by 88.0 million lats as non-residents significantly increased the amount of funds placed with Latvian banks. The volume of long-term loans to Latvian banks by foreign credit institutions grew and non-residents tended to deposit more funds with Latvian banks.

Other sectors attracted 16.5 million lats in other foreign investment, mostly in the form of loans, with long-term loans dominant.

Latvia's balance of payments was positive in the first quarter and reserve assets increased by 13.2 million lats.